Waiver of the right to arbitrate

The Court of first instance of Rome (decision no. 19215 of 28 September 2015, Italian text available here) ruled in a complex case concerning the relationship between a limited liability company and its former director. First of all, the company sued the former director before the Court, claiming his liability. In a second case (the case of the decision at hand), the former director requested the Court to issue a payment order against the company, in order to obtain the amounts allegedly owed to him. The parties did not take into account the arbitration clause stipulated in Article 26 of the Articles of association. This provision notes that “all controversies arising among the quotaholders or among the quotaholders and the company, the directors, liquidators and statutory auditors shall be settled by a sole arbitrator appointed by the President of the Certified Public Accountants Register of the place where the company has its registered office (….).” In the judicial proceedings commenced by the company, the former director objected that the Court did not have jurisdiction, due to the above mentioned arbitration clause. On its turn, the company raised this objection when challenging the payment order issued in favour of the former director.

Did the parties waive their right to arbitrate, by initiating Court proceedings?

The Court of first instance of Rome referred to the settled case law according to which the stipulation of an arbitration clause does not preclude the jurisdiction of the Court to issue a payment order (which, under Italian law, is an ex parte order). Consequently, it is the burden of the ordered party to timely object that the jurisdiction rests with the Arbitral Tribunal (if the arbitration clauses provides for the regular arbitration procedure which results in an enforceable award: the so-called “arbitrato rituale”), or the inadmissibility of the claim (if the arbitration clause provides for an alternative arbitration procedure which does not result in an enforceable award: the so-called “arbitrato irrituale”). It is a consequence of the “non ultra petita” principle: the Court is not allowed to declare its lack of jurisdiction (or the inadmissibility of the claim), if the concerned party fails to timely raise the relevant objection (among the many examples, see decision no. 3246 of 9 July 1989 of the I Civil Chamber of the Supreme Court; decision no. 8166 of 18 July 1999 of the I Civil Chamber of the Supreme Court; decision no. 12684 of 30 May 2007 of the the I Civil Chamber of the Supreme Court; decision no. 5265 of 4 March 2011 of the the II Civil Chamber of the Supreme Court).

Furthermore, the Court stated that the parties did not waive their right to arbitrate even if they brought a counterclaim in judicial proceedings (a counterclaim would entail that the Court has jurisdiction over the claim) or they commenced proceedings in Court with respect to a different dispute concerning the same relationship. In this case: “there is no waiver (implicit or explicit) of the right to arbitrate, due to the fact that a counterclaim was brought and other proceedings in Court were commenced.” In this respect, the Court referred to a recent ruling of the Supreme Court (decision no. 3463 of 20 February 2015 of the II Civil Chamber, Italian text available here). This ruling states that “in an arbitration case, the arbitration clause may refer to arbitration all civil and commercial disputes concerning the negotiable rights arising from the contract in which the clause is stipulated. However, the waiver of the right to arbitrate with respect to a certain dispute arose between the parties does not entail the waiver of the right to arbitrate with respect to any future dispute. The only possible exception is an agreement between the parties, whereby they explicitly waive their right to arbitrate (…).”

Therefore, the Court ruled that the parties did not waive their right to arbitrate and, thereafter, decided upon the issue of the arbitrability of the dispute.

The Court ruled that the dispute was arbitrable, although its reasoning seems to mistake the concept of the non-negotiability of rights with the imperative nature of the relevant law rules. The Court ruled: “it is necessary to examine on a case-by-case basis every situation according to the scope of the dispute, the negotiability or non-negotiability of a given right, and checking if the given right may be waived or not according to the applicable rules. It is also important ascertaining whether the violation of a certain rule determines a Courts’ reaction without the need of any initiative by the parties. It seems clear that the case at hand concerns a dispute that the parties may freely regulate or settle by concluding agreements thereof (…).” I already analysed this issue in this article.

The Court of first instance of Rome set aside the payment order and declared that the former director’s claim was inadmissible. The reason was that the arbitration clause provided for the so-called “arbitrato irrituale” (that is, an alternative arbitration procedure which does not result in an enforceable award). Therefore, the court re-carachterised the objection raised by the company aiming at “declaring the Court’s lack of jurisdiction”. On the other hand, the Court did not set a time-limit to re-commence the proceedings before the Arbitral Tribunal, ruling that article 819/ter of the Italian Code of Civil Procedure did not apply. In fact, by virtue of the decision no. 223 of 19 July 2013 of the Constitutional Court (Italian text available here), a claim brought in Court may be transferred to an Arbitral Tribunal (and vice versa) only if the arbitration clause provides for the so-called “arbitrato rituale” (that is, the regular arbitration procedure which results in an enforceable award).

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